Determining the best B2B wholesale distributor pricing strategy can be difficult, whether you are a new wholesale consumer-packaged-goods (CPG) brand just getting started or an established brand launching a new product line.
Various mathematical formulas are used to calculate a product’s price, margin, markup, markdown, profitability, and sales history. Fortunately, there are only a few things you need to know when pricing products for wholesale.
In this blog post, we’ll review a few of those formulas as well as some steps you can take to develop successful wholesale pricing strategies.
But first, let’s clarify what wholesale pricing is and how it differs from retail pricing.
Table of Contents
- Wholesale Pricing | Wholesale Pricing Definition
- What’s the Difference Between Wholesale & Retail Pricing?
- Wholesale Price Optimization for Retailers
- How is Wholesale Pricing Calculated / How to Calculate a Price for Wholesale Distributors
- CPG Wholesale Pricing
- 2 Types of Formulas to Calculate Wholesale Price
- Distributors Pricing: The Art of Balancing Profitability and Competition
- Conclusion
Wholesale Pricing | Wholesale Pricing Definition
Wholesale pricing refers to the prices used in bulk transactions (for large volumes). When someone buys 100 cases of Coca-Cola rather than one or two bottles of coke, they are buying wholesale.
The goal of wholesale pricing is to make a profit by selling consumer goods at a higher price than it costs to manufacture them. For example, if making one product costs you $10 in labor and materials, you could set a wholesale price of $20, giving you a $10 per unit gross profit.
What’s the Difference Between Wholesale & Retail Pricing?
When compared to wholesale prices, retail prices are relatively high. This is because retail profit margins must typically be higher to account for expenses and operating costs such as advertising and marketing, rent, staff salaries, utilities, and so on.
Wholesale businesses have lower operating costs than retail businesses because they require less skilled labor, marketing efforts, physical storefront maintenance, and so on. As a result, wholesale pricing is founded on the idea of selling in bulk at a lower markup. Since their expenses are lower, wholesalers can still make a profit with lower prices.
If you sell both retail and wholesale, knowing how to differentiate your wholesale price from your recommended retail price is critical because your wholesale buyers are unlikely to accept your retail pricing model.
To ensure a healthy return on investment (ROI), the general rule of thumb is that your final selling price should be 50% of the retail price. A good pricing strategy, on the other hand, is highly dependent on your business, so there is no one-size-fits-all solution.
Competitive wholesale pricing is meant to boost your sales but getting the numbers wrong can cause big headaches for most distributors.
Read this FREE ebook Avoid the Top 5 Mistakes Wholesales Distributors Make and learn how to avoid pricing mistakes and other challenges faced by distributors.
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Wholesale Price Optimization for Retailers
Wholesale price optimization for retailers refers to the process of determining the ideal price to charge for products sold to retailers, wholesalers, or distributors. The goal of wholesale price optimization is to find a pricing strategy that maximizes revenue while remaining competitive in the market.
Retailers need to consider several factors when setting wholesale prices, such as the cost of production, distribution, and marketing, as well as the demand for the product, the competitive landscape, and the target market. A retailer must also factor in the profit margin required to ensure a viable business.
To optimize wholesale prices, retailers can use pricing analytics tools that use data and algorithms to identify pricing patterns and trends. These tools can help retailers analyze factors like seasonality, competitive pricing, and customer demand, to set optimal wholesale prices that maximize profitability and revenue.
Retailers can also use dynamic pricing strategies, which adjust wholesale prices in real-time based on market conditions, demand, and competition. This approach allows retailers to be more flexible in their pricing and take advantage of changing market conditions to increase profits.
Overall, wholesale price optimization is a critical component of a successful retail business. By finding the optimal pricing strategy, retailers can maximize revenue, increase profits, and stay competitive in their market.
How is Wholesale Pricing Calculated / How to Calculate a Price for Wholesale Distributors
FREE Wholesale Pricing Calculator
Download your free wholesale pricing calculator now to get started.
1. Do market research
Determine your market segment and where you fit in before you set any product prices. For example, are you a discount brand, a contemporary brand, or a designer brand? This also influences how your target audience perceives you, which in turn influences your pricing.
If your competitive advantage is a lower price point, keep that in mind as you conduct your research. Be aware of your break-even point and use the break-even point formula to determine it.
Consider these factors when conducting market research if your target customers are more budget-conscious or looking for a high-quality, high-end product.
2. Calculate your cost of goods manufactured (COGM)
The basic price-setting formula is that products should sell for more than they cost you. Once you’ve determined how much your competitors are charging for comparable products, you can compare those figures to your production costs.
The COGM of a product can be calculated using the following formula:
Total Material Cost + Total Labor Cost + Additional Costs and Overhead
= Cost of Goods Manufactured
Unless you are directly involved in manufacturing, you will have to purchase products from the people who make them. They have their own prices, and for each order, you must also consider:
- Shipping fees
- Administrative and processing costs for receiving products
- Failure or defective product rates
When you know how much a product costs, you can start thinking about profit margins. They should ideally be comparable to what your competitors are charging, At least, if you’re selling comparable-quality goods.
If you want to attract more customers, you can choose to offer lower prices than your competitors.
However, this means you’ll have lower profit margins. Higher prices, on the other hand, may not be well received by customers unless you are selling unique products or your quality is significantly higher.
3. Analyze retail prices
Prices for wholesale goods do not exist in a vacuum. If you have any doubts about your prices, you can refer to the three datasets listed below:
- Each product's basic production costs
- How much your wholesale competitors charge
- How much retail stores charge for the same items
Unless you’re missing something, there should be a difference between the two price lists.
Ideally, you should charge wholesale prices that are comparable to the competition. If you choose to go higher, keep in mind that you may be eating into retailer profit margins, making you a less appealing option.
It’s useful to compare wholesale and retail figures in a spreadsheet for future reference. You’ll be able to appreciate the difference in margins between the two types of businesses for your specific niche this way.
If you’re interested in a wholesale to retail price calculator, Orders in Seconds offers a FREE Wholesale Price Calculator to help you figure out wholesale prices.
CPG Wholesale Pricing
CPG (Consumer Packaged Goods) wholesale pricing refers to the pricing strategy used by manufacturers of consumer goods to sell their products to retailers or wholesalers. The pricing strategy aims to achieve the manufacturer’s financial goals while competitive prices to retailers.
Manufacturers must consider various factors when setting CPG wholesale prices, such as the cost of production, shipping, and distribution, marketing and advertising expenses, and the desired profit margin. They also need to consider the competitive landscape and demand for the product in the market.
Manufacturers typically offer volume-based discounts to retailers or wholesalers, with higher discounts offered for larger orders. This encourages retailers to purchase more products at once, increasing the manufacturer’s revenue while providing retailers with a competitive price.
Manufacturers may also offer promotional pricing to retailers or wholesalers, such as temporary discounts or rebates, to encourages retailers to promote their products to consumers. This can help increase sales and drive demand for the product.
In addition to volume-based discounts and promotional pricing, manufacturers may also use other pricing strategies, such as dynamic pricing, where prices adjust based on market conditions, and value-based pricing, where prices are based on the perceived value of the product.
Overall, CPG wholesale pricing is a critical aspect of a manufacturer’s business strategy. By setting the right prices, manufacturers can increase revenue, stay competitive, and built relationships with retailers and wholesalers.
2 Types of Formulas to Calculate Wholesale Price
There are numerous wholesale pricing strategies available, but don’t worry—learning them all isn’t necessary if you’re new to selling wholesale. Instead, let’s go over two quick and easy wholesale pricing methods you can use right now.
Absorption Pricing Formula
This is the most basic wholesale price formula you can use in your business. It’s referred to as “absorption” pricing because the final figure includes both your production costs and profit margins.
The formula for absorption pricing is as follows:
Wholesale Price = Cost Price + Profit Margin
Are you unsure how to calculate the cost price?
You’ll need to understand your costs of goods sold (COGS) as well as your overhead costs. Here’s a quick refresher:
- Calculate your cost of goods sold.
- Calculate your overhead costs.
- Total the two expenses.
- Once you have those two numbers, add them together to get your formula's total cost price.
Absorption pricing method pros:
- It is simple to use and does not necessitate any training or complicated formulas.
- Your profits are almost certain. If you can account for all expenses, you should be able to turn a good profit.
Absorption pricing method cons:
- Pricing gaps are common, and no competitor pricing is taken into account.
- This method does not take into account value perception. You might charge too much, sending potential customers elsewhere.
Differentiated Pricing Formula
Differentiated pricing is a wholesale pricing method that calculates demand for a product to optimize return on investment (ROI). Different buyers in different situations pay different prices for the same product in this case.
This pricing method, also known as demand pricing or time-based pricing, is based on the idea that buyer acceptance determines the price in any given market condition.
For example, if you sell swimsuits, you can charge more than the average market price during peak seasons. You’ll notice that the price of swimsuits in retail stores can quickly rise at the start of the summer season, then drop after demand drops.
This also applies to areas where there is less competition and customers typically pay a higher price for products, such as a beach resort or an airport.
Wholesalers can also offer products at a lower price by using differentiated pricing. For example, if you have too much old stock on hand, you can run a last-minute flash sale and still make a profit.
Differentiated pricing method pros:
- This method can provide the best return on investment. It allows you to take advantage of market scenarios in real-time, stay competitive, and gather buyer data.
- When a product is in high demand, buyers are often willing to pay a premium, which means more profit for you. Differentiated pricing can be used to sell trending products and other items that are hard to find or extremely popular.
Differentiated pricing method cons:
- There is a fine line between profit maximization and overcharging wholesale customers. If you are perceived as opportunistic, or if people believe you are price-gouging them, your brand's reputation will suffer.
Distributors Pricing: The Art of Balancing Profitability and Competition
Distributor pricing is a critical aspect of the wholesale distribution industry, as it directly impacts the financial performance of distributors and the competitiveness of their products. Distributors use a variety of pricing strategies to determine the prices of their products, taking into account factors such as products cost, transportation, handling, labor, and overhead costs.
Distributor pricing also considers market demand, competition, and customer segmentation, with different prices offered to different customer segments based on factors such as volume, frequency, and loyalty. Distributors also use technology to analyze data on customer behavior, product performance, and market trends to optimize pricing strategies and identify pricing opportunities. However, distributor pricing is not without challenges, as pricing changes can have significant impacts on customer relationships and profitability. Moreover, pricing transparency and fairness can ve a concern for some customers.
Effective distributor pricing requires a delicate balance between profitability and competition, where distributors must set prices that are attractive to customers while still generating sufficient margins to cover their costs and grow their business.
Conclusion
Setting prices for your store is never easy. Wholesale prices should be lower than retail prices on average.
However, before you set a price, you must ensure that all costs have been considered. That means taking into account production, administrative, and handling costs before even considering a wholesale margin profit.
If you use Orders in Seconds for your B2B wholesale distribution business, you can offer wholesale pricing at the group, category, and brand levels, chain store or single store level, or special prices on discounted products.
If you would like to learn more about a wholesale software solution to automate product pricing for field sales reps or B2B eCommerce, please contact Orders in Seconds.
